Posts Tagged ‘Foreclosure’

Lenders Might Be Getting Rid of Foreclosure Backlog

There might be some hope for this real estate market after all, but it may not come soon. Foreclosure filings (for homes in some stage of the process) declined in May by 3% from April 2010 according to Realty Trac as reported by the Los Angeles Times. California accounts for 22% of these foreclosure filings from all over the country.

The article also reported that the pace of homes exiting foreclosure and being seized by banks hit a record high in May for the second consecutive month, which leads us to believe that the banks might be working through their backlog on the market and ready to put some more foreclosed homes on the market very soon. Anecdotally, many people have noticed that banks will either hold on to inventory after foreclosing or will delay foreclosure so as to avoid flooding the real estate market with inventory. We might begin to see some of that “shadow inventory” that has been referred to so often.

You may read the entire article here.

After a Foreclosure

With the number of foreclosures, short sales and other financial hardships affecting so many people in Sacramento and elsewhere in the country, the question often comes up: Will I ever be able to buy a home again? Will any bank ever give me a loan to finance a real estate purchase?

The short answer is: yes. The longer answer is: yes, but…

And here’s the “but…” part of it. Lenders will always ask for reasons why. One friend said it very matter-of-factly that you will always have to explain a foreclosure but because there are so many right now, the stigma, if you will, of a foreclosure on your record at this time might not affect you as much as it would have during a financially good time. This does not mean that you will not have to provide documentation that you did not strategically let the home foreclose but getting a home loan might not be as distant and impossible as it seems today.

In approximately two to five years after a foreclosure, the financial situation of the borrower could look considerably different to a lender. And you want to keep in mind that although your FICO scores have suffered as a result of the foreclosure, you might be able to show other factors as a good savings history, employment history and so on. Also, other bills paid on time will have a great impact. A larger down payment might also be necessary.

This is to say that if you have genuinely experienced a financial downturn in your life, all is still not lost. The dream of homeownership might still come true for you. It just might take a little longer than you hoped.

Can California Homeowners Be Sued after a Foreclosure?

Unfortunately, for a lot of homeowners, that might just be case. If you’re one of the homeowners who has had his home foreclose due to lack of mortgage payments, there is a chance that in the state of California the lender may be able to sue you for the difference the home is currently worth and the mortgage amount. This can happen only if you have refinanced the home since you bought it.

Currently, if a homeowner defaults on a mortgage used to purchase his or her home – called a “purchase money mortgage” – the homeowner’s liability on the mortgage is limited to the property itself. Unfortunately, the original law did not extend the purchase money protection to loans that refinance the original purchase debt, even if the refinance only was to obtain a lower interest rate.

Californians who refinance a property currently do not have protection if they default on a mortgage greater than the property’s value. Called a “deficiency” liability, under current California law, the lender can sue the former homeowner for the amount of the deficiency even after taking back the property. This is also called a deficiency judgment.

The California Association of Realtors is sponsoring a Senate Bill to close this loophole. We’ll keep you posted. For more details on the SB 1178 go here.

Three Things Your Agent Should Tell you About a Short Sale

Sometimes when I read the material on my colleagues’ web sites, I almost get the impression that the idea of doing a short sale — a sale where the lender approves a payoff amount less than the value of the loan — is being promoted to sellers almost as a normal sale.

It’s not.  To be sure, if you simply can’t pay off your mortgage and are facing foreclosure anyway, a short sale may offer some advantages, the most important of which is that it may prevent non-purchase money lenders from getting a deficiency judgement against you (refinance or home equity lines of credit are typically non-purchase money and hence the lender has a deficiency judgement as one option in a foreclosure situation).  But you should also be aware of these facts about a short sale.

You Will Be Asked to Show Hardship, and You Have to Tell the Truth
In order to approve a short sale, a lender has to believe that they’re not going to get their money any other way unless they do, and this typically means that you have to show that you can’t pay for some important reason — sickness, death of a spouse, loss of a job, or the like.  Also, if you’re paying off a $100,000 loan and you have a six figure income and good credit, don’t expect the bank to welcome your request that they take a loss.  So you’re going to have to show a hardship, and be aware:  if you lie, that’s loan fraud.

Short sales will not “Save Your Credit” (At Least Not All of It)
If a Realtor® suggests that you can save your credit with a short sale, run, don’t walk.  There is some debate over how much impact a short sale will have on your credit, and it also depends on how the bank reports it, some of which may be negotiable.  However, in general you should only go through the short sale process as a last resort.   Although a short sale may not impact your credit quite as much as a foreclosure, you should still expect to it to have a strong negative impact on your credit.  Whether it’s “as bad” as a foreclosure or bankruptcy or “almost as bad” depends on who you ask.

Once the Short Sale is Over, You May Owe Taxes
There are two possible tax liabilities to a short sale.  First, if the sale results in a gain in value of the property, you may need to pay capital gains tax, regardless of the value of the notes involved.  Secondly, if the lender accepts less than full payment, the difference may be reported to the IRS as taxable income to you.